Gift Cards

The last decade of my life has been busy. A parade of graduations, weddings, and a slew of professional events swing my life between excitement and peaceful mundanity. When I look back at these celebrations, the only common touchstone seems to be our culturally-mandated marking of life events via gift-giving.

Having just rejoined the corporate world after a stint in retail management, the memory of customers buying everything from computers and ornate plaques, to a Slinky or Office Space “set-the-building-on-fire” red stapler as gifts for friends, family, and co-workers sits fresh in my mind. However, more than any section of the store, the two 4-foot racks of gift cards near our checkout space tended to garner the most reliable interest from would-be gift-givers.

Now in the world of merchant processing, I began researching the backend of these overtly popular, brightly colored pieces of slightly-magnetic plastic and what effect they have on our economy. What I found was a leviathan of a market driver with more dedication to their propagation than many religions.

GiftCards.com claims that, as of 2015, ~93% of U.S. consumers purchase or receive a gift card annually. In a National Retail Federation (NRF) survey from Prosper Insights & Analytics, 73 percent of adults stated that they planned to buy a gift card in the 2015 holiday season, with 15 percent saying they planned to buy 6 or more cards. It would seem we enjoy getting them as much as giving them as well, as gift cards have entered their 10th year running as the #1 most-requested gift in the country.

According to data compiled from CEB, this staggering market penetration amounted to >$125 billion spent on gift cards in 2015, with projections continuing to grow in coming years. Spillage is at an all-time low thanks to continued impact on junk fees and expiration dates from 2009’s CARD Act, sitting steadily around 0.75 percent. However, in a 12-figure industry, those crucial 75 basis points will amount to almost a billion dollars in unclaimed profit for businesses this year, with continued growth on the horizon.

For a small or mid-sized business (SMB), gift cards can hugely impact their bottom line. Consumers are proven to choose a retailer for whom they have a gift card over their competition, with 72% of customers spending more than the value of their card, averaging 20% more than the card’s original value. Additionally, 41% of gift card recipients say that receipt of a gift card prompted them to visit a store to which they wouldn’t have otherwise shopped. With the average American household having $300 in unused gift cards and 40% of the population never using the total value of those cards, each gift card walking out the door of an SMB is statistically profitable.

Now what impact does this bring to the banking world? Simple. Companies with gift card programs (especially those with loyalty programs combined with them) are statistically more likely to receive more business (59% of gift card holders said simply having a card would increase their frequency of visit) and therefore see an increase in revenue. This growth in profitability and customer base leads to reliance on gift cards as a sales tool and source of profit. As a partner bank alongside a processing company and gift card program, merchants are made considerably stickier, retaining accounts and revenue streams longer and stronger.

Given all this data, I was left with a single question. Why do we, as consumers, want these little cards so badly? The simple answer came from diving deep into a comprehensive data set from the NRF. 50 percent of their responders stated the most influential reason to purchase a gift card was the recipient’s ability to select their own gift. Given our society’s obsession with personal choice, this comes as no surprise to me, but doesn’t make me feel much better.

Joel lives in Southeastern Indiana, making things look good and sound pretty alongside Approval Payment Solution’s vibrant team of merchant processing specialists. Partnered with over a hundred banks, APS has proudly served businesses across the country for the last 19 years, processing over $2 billion annually. Find out more at apsolutions.net or by calling 888.311.7248.